Muni Mutual Fund Outflows Slowed for 23rd Week in Row

Investor demand improved as outflows from municipal bond mutual funds continued for a 23rd consecutive week.

Those funds that report flows weekly recorded outflows of $503 million for the week of Oct. 30, Lipper FMI data showed. This represents a second week of relatively improved investor demand from the previous week, when $746 million left the market.

The string of outflows still runs shy of the 29-week slump from Nov. 17, 2010, to June 8, 2011, after $22 billion in tobacco bond downgrades and Meredith Whitney's erroneous forecast of hundreds of billions of dollars in municipal defaults in an interview on 60 Minutes spooked investors.

The current flight of investor money stems from a slew of factors, including rising interest rates, concern that the Federal Reserve will withdraw economic stimulus and credit-quality issues related to Detroit's bankruptcy filing and Puerto Rico's struggling finances and debt burden.

This week muni yields quietly outperformed Treasuries as new issuance declined and the secondary market saw modest trading. Investor demand for new paper held throughout the week.

Yields moved the most on Tuesday's session, Municipal Market Data numbers show. The 10-year triple-A yield fell five basis points since last Friday to 2.44%.

The two-year slipped one basis point over the span to 0.34%. The 30-year yield fell three basis points to 4.04%.

Muni ratios to Treasuries fell over the week, moving tax-exempts into richer territory on the short and intermediate parts of the yield curve. The 10-year ratio since last Friday dropped four percentage points, to 96%.

The two-year ratio declined 11 percentage points to 106%. The 30-year ratio slipped two percentage points over the period to 111%.

Assets for all muni funds that report their flows climbed to $281.5 billion, rising for a second straight week. During the previous week they increased to $280.2 billion.

The value of the holdings for weekly reporting funds rose by $1.45 billion. The week before, they increased by $2.02 billion.

The four-week moving average for all municipal bond mutual funds that report their flows weekly was $821 million of outflows, compared with $868 million of outflows the week before.

Weekly reporting long-term muni bond funds suffered outflows for the fifth straight week and the 34th time in the last 35 weeks, losing $221 million. That compares to a revised $422 million that left the market for the week of Oct. 23.